Estate receives 120 days to make a reverse QTIP election

Plain-English summary

A decedent's revocable trust funded a federal marital trust for the surviving spouse, and the estate elected qualified terminable interest property treatment on a late-filed Form 706. The estate's attorney did not list the marital trust on Schedule R to make the reverse QTIP election and did not advise the personal representative to allocate the decedent's generation-skipping transfer tax exemption to the trust. Without relief, the surviving spouse would become the transferor for generation-skipping tax purposes before any generation-skipping transfer, preventing allocation of the decedent's exemption. The IRS found that the estate met the discretionary relief standards because it relied on a qualified tax professional who failed to make or recommend the election. It granted 120 days to make the reverse QTIP election on a supplemental Form 706.

Ruling snapshot

• Question: May the estate make a late reverse QTIP election for the federal marital trust?
• Outcome: Approved, with 120 days to file a supplemental Form 706
• Key authorities: IRC §§ 2056(b)(7), 2631, 2632, 2652(a)(3); Treas. Reg. §§ 26.2652-2, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202445014 Third Party Communication: None
Release Date: 11/8/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00, 2652.01-01
Person To Contact:
---------------------------------------- ---------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
---------------------------------- --------------------
---------------------------------- Refer Reply To:
------------------------------ CC:PSI:04
PLR-107835-24
RE: ---------------------------------------------- Date:
---------------------------------------------- August 01, 2024

LEGEND

Decedent = ------------------------------------ -----------------
Spouse = ------------------------------------------------------------------------

Revocable Trust = --------------------------------------------------
Federal Marital Trust = -----------------------------------------------------------------------

Child = -----------------------------------------------
Date 1 = -----------------------
Date 2 = -----------------
Date 3 = ----------------
Date 4 = ----------------------
Attorney = ----------------------

Dear ----------------:

This letter responds to a letter dated April 16, 2024, submitted on behalf of Decedent’s
estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to make a “reverse” QTIP election under § 2652(a)(3).

The facts and representations submitted are summarized as follows:

On Date 1, Decedent established a revocable trust, Revocable Trust. Decedent died
testate on Date 2, survived by Spouse. Spouse subsequently died on Date 3.

Section III, Paragraph B of Revocable Trust provides, in relevant part, that upon
Decedent’s death the Trustees shall set aside the smallest amount that, when added to

PLR-107835-24 2

the total value of all interests in property passing or which shall have passed at the time
of Decedent’s death to Spouse for which a marital deduction is allowable under the
federal estate tax laws in effect at Decedent’s death, will cause there to be the least
possible (or no) federal and state estate taxes payable by Decedent’s Estate. The
Trustees shall divide this amount into two parts known as the Federal Marital Trust and
the State Exemption Marital Trust and shall allocate to the Federal Marital Trust an
amount equal to the smallest amount that shall (or would) cause there to be the least
possible (or no) federal estate taxes payable by Decedent’s estate. The Trustees shall
allocate to the State Exemption Marital Trust, the balance, if any, of the amount passing
pursuant to Paragraph B.

Section III, Paragraph C provides that the balance of the trust shall be held as the
Residuary Trust. In this case, only the Federal Marital Trust and the Residuary Trust
were funded.

The governing terms of the Federal Marital Trust provide that the Trustees shall pay to
Spouse all of the net income from the Federal Marital Trust for his lifetime. In addition,
the Trustees may pay to Spouse from the principal of the Federal Marital Trust such
amounts as the Trustees, in their sole and absolute discretion, deem necessary or
advisable for his health, maintenance and/or support in his accustomed manner of living
at Decedent’s death. Upon Spouse’s death, the Trustees shall distribute the Residuary
Trust (including any amounts received from the Federal Marital Trust) among
Decedent’s then living descendants as Spouse may appoint by his will, in trust or
outright; provided, however, that Spouse shall also have the power to appoint an
income interest to the spouse of any of Decedent’s descendants. The Trustees shall
divide any unappointed part of the Residuary Trust among Decedent’s then living
descendants, per stirpes, in further trust as provided in the trust instrument.

Attorney represented Decedent and Spouse during Decedent’s lifetime as Decedent’s
trusts and estate lawyer. Attorney also advised Child, serving as the personal
representative of Decedent’s estate, with the preparation and filing of Form 706, United
States Estate (and Generation-Skipping Transfer) Tax Return. On Date 4, Form 706
was filed late and contained an election to treat the Federal Marital Trust as “QTIP
property.” However, Attorney failed to include Federal Marital Trust on Part 1, Line 9 of
Schedule R in order to make the reverse QTIP election under § 2652(a)(3) as
instructed. Thus, a reverse QTIP election was not made with respect to the Federal
Marital Trust. Attorney failed to advise Child to make the reverse QTIP election or apply
Decedent’s GST exemption to the Federal Marital Trust. It is represented that
Decedent has sufficient GST exemption to allocate to the Federal Marital Trust.

You have requested an extension of time under §§ 301.9100-1 and 301.9100-3 to make
a reverse QTIP election under § 2652(a)(3) with respect to the Federal Marital Trust.

PLR-107835-24 3

LAW AND ANALYSIS

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent
who is a citizen or resident of the United States.

Section 2044 provides, in part, that the value of the gross estate shall include the value
of any property for which a deduction was allowed with respect to the transfer of such
property to the decedent under § 2056(b)(7) in which the decedent had a qualifying
income interest for life.

Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of
the taxable estate shall, except as limited by § 2056(b), be determined by deducting
from the value of the gross estate an amount equal to the value of any interest in
property which passes or has passed from the decedent to the surviving spouse, but
only to the extent that such interest is included in determining the value of the gross
estate.

Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest property,
for purposes of § 2056(a), such property shall be treated as passing to the surviving
spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be treated
as passing to any person other than the surviving spouse.

Section 2056(b)(7)(B)(i) defines the term “qualified terminable interest property” as
property: (I) which passes from the decedent; (II) in which the surviving spouse has a
qualifying income interest for life as defined in § 2056(b)(7)(B)(ii); and (III) to which an
election under § 2056(b)(7) applies.

Section 2056(b)(7)(B)(ii) provides that the surviving spouse has a qualifying income
interest for life if: (I) the surviving spouse is entitled to all the income from the property,
payable annually or at more frequent intervals, or has a usufruct interest for life in the
property; and (II) no person has a power to appoint any part of the property to any
person other than the surviving spouse.

Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with respect to
any property shall be made by the executor on the return of tax imposed by § 2001.
Such an election, once made, shall be irrevocable.

Section 2601 imposes a tax on every generation-skipping transfer. Section 2611(a)
provides that the term “generation-skipping transfer” means: (1) a taxable distribution;
(2) a taxable termination; and (3) a direct skip.

Section 2602 provides that the amount of the GST tax is determined by multiplying the
taxable amount by the applicable rate. Section 2641(a) provides that the term
“applicable rate” means, with respect to any GST transfer, the product of the maximum
federal estate tax rate and the inclusion ratio with respect to the transfer.

PLR-107835-24 4

Section 2631(a) provides that, for purposes of determining the inclusion ratio, every
individual shall be allowed a GST exemption amount which may be allocated by such
individual (or his executor) to any property with respect to which the individual is the
transferor. Section 2631(b) provides that any allocation under § 2631(a), once made,
shall be irrevocable.

Section 2632(a) provides that any allocation by an individual of his or her GST
exemption under § 2631(a) may be made at any time on or before the date prescribed
for filing the estate tax return for such individual’s estate (determined with regard to
extensions), regardless of whether such a return is required to be filed.

Section 2632(e)(1) provides that, in general, any portion of an individual’s GST
exemption which has not been allocated within the time prescribed by § 2632(a) shall
be deemed to be allocated as follows: (A) first, to property which is the subject of a
direct skip occurring at such individual's death, and (B) second, to trusts with respect to
which such individual is the transferor and from which a taxable distribution or a taxable
termination might occur at or after such individual's death.

Section 26.2632-1(d)(2) of the Generation-Skipping Transfer Tax Regulations provides
that a decedent’s unused GST exemption is automatically allocated on the due date for
filing the Form 706, or Form 706NA, to the extent not otherwise allocated by the
decedent’s executor on or before that date. Unused GST exemption is allocated pro
rata (subject to the rules of § 26.2642-2(b)), on the basis of the value of the property as
finally determined for purposes of chapter 11 (chapter 11 value), first to direct skips
treated as occurring at the transferor's death. The balance, if any, of unused GST
exemption is allocated pro rata (subject to the rules of § 26.2642-2(b)) on the basis of
the chapter 11 value of the nonexempt portion of the trust property to trusts with respect
to which a taxable termination may occur or from which a taxable distribution may be
made. No automatic allocation of GST exemption is made to a trust that will have a
new transferor with respect to the entire trust prior to the occurrence of any GST with
respect to the trust. The automatic allocation is irrevocable.

Section 2642(a)(1) provides that, generally, the inclusion ratio with respect to any
property transferred in a GST is the excess of one over the applicable fraction
determined for the trust. Section 2642(a)(2) provides that, in general, the applicable
fraction is a fraction the numerator of which is the amount of the GST exemption
allocated to the trust and the denominator of which is the value of the property
transferred to the trust, reduced by the sum of any federal estate tax or state death tax
actually recovered from the trust attributable to such property, and any charitable
deduction allowed under § 2055 or 2522 with respect to such property.

Section 2652(a)(1) provides that for purposes of chapter 13, the term “transferor”
means: (A) in the case of any property subject to the tax imposed by chapter 11, the
decedent; and (B) in the case of any property subject to the tax imposed by chapter 12,

PLR-107835-24 5

the donor. An individual shall be treated as transferring any property with respect to
which such individual is the transferor.

Section 2652(a)(3) provides, in pertinent part, that in the case of any trust with respect
to which a deduction is allowed to the decedent under § 2056(b)(7), the estate of the
decedent may elect to treat all of the property in such trust for GST tax purposes as if
the election to be treated as qualified terminable interest property had not been made
(“reverse” QTIP election).

Section 26.2652-2(a) provides, in part, that a “reverse” QTIP election is not effective
unless it is made with respect to all of the property in the trust to which the QTIP
election applies. Section 26.2652-2(b) provides that an election under § 2652(a)(3) is
made on the return on which the QTIP election is made.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal
Revenue Code except subtitles E, G, H, and I.

Section 301.9100-3 provides the standards used to determine whether to grant an
extension of time to make an election whose date is prescribed by a regulation (and not
expressly provided by statute).

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides the
evidence to establish to the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the government.

Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election.

In this case, as a result of the QTIP election made on Form 706, and pursuant to
§ 2519 or § 2044(a), Spouse will become the transferor of Federal Marital Trust for GST
tax purposes prior to the occurrence of any GST, thereby precluding allocation of
Decedent's GST exemption to Federal Marital Trust. However, if Decedent's estate is
granted an extension of time to make a reverse QTIP election, Decedent will remain the
transferor of Federal Marital Trust for GST tax purposes.

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, the executor of
Decedent’s estate is granted an extension of time of 120 days from the date of this letter
to make a reverse QTIP election with respect to the Federal Marital Trust.

PLR-107835-24 6

The reverse QTIP election should be made on a supplemental Form 706 filed with the
Internal Revenue Service at the following address: Department of the Treasury, Internal
Revenue Service, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy
of this letter should be attached to the supplemental Form 706.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)

                                       Melissa C. Liquerman
                                   _______________________________
                               By: Melissa C. Liquerman
                                   Senior Counsel, Branch 4
                                   Office of Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: